The Zhitong Finance App learned that Everbright Securities released a research report saying that the current inflection point in pig prices has reached, and the recovery in breeding sows and the month-on-month increase in feed sales will exacerbate logical differences in the sector in the short term. The March industry pressure will cause supply to a certain extent, but as the number of newborn piglets in the upstream shrinks and spreads to commercial pigs, compounded by a recovery in demand during the peak season, pig prices are expected to fluctuate upward at a low slope in April and May. Entering 24H2, as producers' behavior affects digestion and the capacity gap is realized, the upward trend in the cycle will become more clear, and the future cycle will have a considerable height and boom duration.

Key recommendations: Muyuan Co., Ltd. (002714.SZ), Wen's shares (300498.SZ), which has steady management and obvious advantages in scale, Shennong Group, which has flexibility and cost advantages, and Xinwufeng (600975.SH), which has a significant margin of safety. At the same time, it is recommended to focus on Huatong Co., Ltd. (002840.SZ) and Superstar Agriculture and Animal Husbandry (603477.SH).

The views of Everbright Securities are as follows:

Interpretation of pig feed sales data for March:

Overall pig feed sales increased in March. According to feed data released by Yongyi Consulting this week, pig feed sales increased sharply in March. Among them, fattening pigs, reserve sows, and piglet feed sales were +21%, +3.8%, and +5.6% month-on-month respectively (-25%, +0.33%, and -11.33% in February, respectively). The spread of standard fertilizer prices continued to rise after the Spring Festival, and the increase in retail and market pressure led to a decrease in the number of standard pigs in circulation. This is an important reason supporting the rise in the price of standard pigs in March. As shown in the feed side, the corresponding feed for reserve sows, piglets, and fattening pigs all showed varying degrees of improvement. Starting from the month-on-month growth side, with a forward reference, sales of reserve sow feed and piglet feed reached the highest monthly growth rate since September '22, and the monthly growth rate of fattening pig feed has hit a new high since the second half of '22. However, after mid-March, the price spread of standard fertilizer gradually narrowed, and the willingness of the breeding side to press the bar declined, and the increase in pressure had little impact on medium- to long-term pig prices.

Interpretation of the data on breeding sows in March:

The number of sows that can breed increased in March. Third-party agencies' energy sow inventory data was released one after another this week, with slight differences. Among them, Steel Union: March energy production market, retail investors, and comprehensive month-on-month ratios were +0.22% (-0.26%, -0.90%, and -0.28% in February, respectively); Yongyi Consulting: +1.57% month-on-month ratio in March (+0.72% month-on-month in February); Zhuochuang Information: +1.25% month-on-month ratio in March (-0.1% month-on-month in February).

“Realistic profit+price increase expectations” led to a recovery in energy.

Driven by actual profits brought about by rising piglet prices and expectations that pig prices will improve in the second half of the year, the willingness of the breeding side to supplement sows has increased markedly. In particular, the price of piglets rose by more than 35% in March. At the end of the month, the price of 15-kilogram piglets had already surpassed 700 yuan/head. Farmers who supplement piglets in February have already made huge profits. Under the dual support of reality+expectations, the outflow rate is being tightened. Judging from the structure, retail investors reacted more sharply to profits. The sharp increase in production capacity in March is similar to the situation where they drastically reduced production capacity in June, October, and December '23. In contrast, large-scale farms have maintained rationality in production capacity adjustments, and the overall energy storage column has increased slightly.

The current level of production capacity removal is sufficient to support the booming performance of pig prices.

At present, the core investment logic of the sector has gradually switched from accelerated production capacity removal to rising pig prices. The actual impact of rising pig prices in March was not significant on pig price performance in '24. More importantly, there is no excess production capacity, and the current rate of removal is sufficient to bring about a relatively high level of pig prices and the sustainability of the economy. In terms of height, the number of sows that were able to breed in February '24 was reduced by more than 11% compared to the high cycle of 45.64 million heads in June '21, which is enough to push pig prices to surpass 2022 in terms of height. In terms of the sustainability of the economy, the current price of pigs is lower than the full cost of large-scale farms. If losses are not completely reversed, the level of production capacity of large-scale farms is limited, and the contraction of reserve sows will continue to spread to the ability to thrive. It is expected that short- to medium-term production capacity will remain at the current low level and rise in a narrow range, so the sustainability of the high cycle is still guaranteed.

Risk warning: risk of animal disease, risk of fluctuations in feed raw material prices, risk of pig prices falling short of expectations.